Have a Merchant Cash Advance? Find Out If It Is Enforceable

Have a Merchant Cash Advance? Find Out If It Is Enforceable.

Spingos Law acts for Ontario business owners and guarantors. In a free 30-minute consultation a lawyer goes through your merchant cash advance agreement with you and gives you a preliminary view of whether it is likely to hold up and what your guarantee exposes. No cost, no obligation. You do not need to have been sued.

The rules changed on January 1, 2025. The Criminal Code now caps interest at 35% APR, and federal regulations allow up to 48% APR on a business advance over $10,000 and up to $500,000 when the borrower is a company, with no cap above $500,000. Converted to an annual rate, a 1.35 factor advance repaid weekly over eight months works out to roughly 95% APR.

Test whether the advance is a sale of receivables or, in substance, a loan

Check the true annual cost against the 35% and 48% federal thresholds

Explain what your personal guarantee and any security expose, including your home

Free consultation· Confidential· Ontario only

Free MCA Consultation

Tell us about your advance. We aim to respond the same business day.

What happens next

You send the detailsTell us who funded the advance and where things stand. It takes about a minute.

A lawyer calls youWe go through the agreement, the guarantee and the payment history with you and give you a preliminary view of where you stand.

You get your optionsHow the agreement is likely to be tested, what the guarantee exposes, and what any next step costs, before you commit to anything.

What a merchant cash advance actually is

A merchant cash advance is sold as a purchase of your future sales, not a loan. The funder advances a lump sum and takes a fixed amount back through daily or weekly debits, priced as a factor rate: a 1.35 factor on $100,000 means $135,000 comes back. Most agreements add a personal guarantee by the owner and a security agreement over the business's assets, and some add a confession of judgment for a court outside Canada.

That label is what a court tests. Canadian courts look at the substance of a transaction, not its name: who really bears the risk that the sales never arrive, whether repayment is fixed regardless of revenue, and what recourse the funder has against you personally. An advance that behaves like a loan can be treated as one.

Why the rate matters since January 2025

The Criminal Code makes it an offence to enter into an agreement to receive interest above 35% APR, and "interest" includes fees, commissions, penalties and default charges of every kind.
Federal regulations allow up to 48% APR on a business advance over $10,000 and up to $500,000 when the borrower is a corporation, and set no cap on a commercial advance above $500,000. There is no exemption for a sole proprietor, or for advances of $10,000 or less.
A 1.35 factor repaid in equal weekly instalments over eight months works out to roughly 95% APR, about double the 48% ceiling and nearly three times the 35% rate.

If a court decides an advance is really a loan at a criminal rate, the usual remedy is not that the money is forgiven. The Supreme Court of Canada has held that judges have a range of remedies and often read the rate down to the legal maximum. That is still a real defence to the excess, and it changes the negotiation.

What your guarantee actually exposes

Personal guarantees are read strictly against the funder that drafted them. If the funder and your company materially changed the deal without your consent, the guarantee may not bind you, and ambiguity is read against the funder. On the other side of the ledger, a judgment on a guarantee is enforced against your personal property, and in Ontario a writ of seizure and sale reaches the family home. That is why owners who also own a home should have the agreement read before, not after, the funder moves.

Signs an agreement deserves a closer look

Fees demanded before the money arrived
The price quoted only as a factor rate or "cost of capital", never as an annual rate
A reconciliation clause that is discretionary, or that was never honoured when sales dropped
A second or third advance layered on top of the first
A confession of judgment for a court outside Canada
A personal guarantee plus a security agreement over everything the business owns, on an advance of a few months

None of these makes an agreement unenforceable on its own. Each is a reason to have it read. That is what the free consultation is for: a lawyer goes through the agreement with you and tells you plainly where you stand, including when the honest answer is that it holds up.